The U.S. Air Force contract with Boeing for engineering and manufacturing development (EMD) of the KC-46A aerial refueling tanker caps the government’s cost liability, government program executives said. They nevertheless expressed concern about program risks during a hearing before a House of Representatives subcommittee on October 13.

The fixed-price, incentive-fee EMD contract awarded to Boeing in February provides a contract ceiling of $4.83 billion. It calls for Boeing to produce four prototype tankers based on the 767-2C, a new commercial freighter derivative of the 767-200ER. Boeing has informed the Air Force that it will exceed the agreed ceiling by some $300 million, according to published reports. “The contract structure helps protect the taxpayer by capping the government’s cost liability and preventing runaway cost growth.” the program executives said.

The development approach using a commercial derivative also presents risks. Among concerns: Boeing plans to install wiring and other provisions for the tanker on its commercial production line in Everett, Wash., a process of “inline provisioning” that drives risk down to component suppliers. Boeing also requires dual certifications from the FAA–an amended type certificate for the 767-2C and a supplemental type certificate for the military KC-46A. The company is seeking the certifications concurrently, which poses schedule risk, said Brig. Gen. Christopher Bogdan, KC-46 program executive officer, according to a hearing transcript.

The EMD contract runs through 2016. A preliminary design review is scheduled in 2012, followed by critical design review in 2013. The first flight of the 767-2C is planned in 2014. The program strategy is to procure the first 18 of 179 planned tankers by the end of Fiscal Year 2017.

“As we work toward the low-rate initial production decision scheduled for late FY15, we are confident we can maintain the cost and schedule of this program while mitigating the identified risks,” the program executives stated.

The first two production lots of the KC-46A acquisition will be procured on a firm, fixed-price basis and the remaining ones on a not-to-exceed basis. This arrangement would be jeopardized, executives said, if Congress cuts back the program as part of debt-limit “sequestration,” or automatic spending cuts.

“Deep cuts to the KC-46 would gravely impact the program and any cuts will require re-negotiation of the contract, which would forgo the pricing achieved under competitive pressure,” executives stated.